Up and down the country, young people are being screwed by a government that thinks it can win elections based solely on votes from older homeowners.
House prices are currently increasing at their fastest rate since 2004, benefitting property owners and landlords. Yet wealth taxes remain off the agenda. This increase is feeding into higher rents, which are disproportionately paid by young people, many of whom never expect to be able to buy a house without significant support from their parents.
Meanwhile, contrary to promises the Conservatives made to the electorate during the 2019 election campaign, national insurance is being increased in a hugely regressive move that will see young workers shoulder a far higher tax burden than the generation before them.
What’s more, many more people will be brought into paying taxes due to inflation. Wages will increase somewhat as prices rise, which will bring more people above the threshold for tax repayments. But the increase in wages will be outweighed by the increase in the costs of things like food, fuel, and rent—meaning that in real terms people will be worse off and paying more taxes.
Rishi Sunak has claimed to be cutting taxes, while secretly allowing inflation to push millions more people—who could barely afford to survive as it was—into paying more tax. All while his wife has been avoiding tax by claiming non-dom status. At this point, the government isn’t even attempting to hide its disdain for young workers.
And now, inflation is going to dramatically increase the cost of debt servicing for young people attending university. The rate of interest students pay on their loans is set at RPI plus 3%, which means that from September 2022 students will be paying interest rates of 12%, up from 4.5% last year.
It is plainly wrong to charge students such usurious rates of interest, but the fact that the interest rate calculation uses RPI (retail price index), which tends to run higher than CPI (consumer price index), simply adds insult to injury. Many social security payments are tied to inflation, which the government insists on calculating using CPI rather than RPI, which was used before 2010.
Campaigners have been arguing for the use of RPI when calculating the uplift in payments like universal credit for many years now, and unions frequently demand pay deals in line with RPI. But the government consistently rejects these please on the basis that RPI is an ‘outdated’ measure of inflation—and the ONS rarely updates its calculations of RPI, considering it a legacy metric.
So young people are faced with the farce of having their student loan payments tied to one, higher, measure of inflation and their social security payments tied to another, lower, measure of inflation.
But there’s even more to this story. The interest rate increase comes on the back of reforms to the student loan system outlined by the government in February, when Sunak reduced the threshold for repayment of student loans from £2,7295 to £25,000. And graduates will be expected to repay their loans for 40 years before the debt is forgiven, compared to 30 years now.
Under the new system, more than 70% of graduates will repay their loan in full, compared to just 20% today. The austerity-loving IFS calculated that graduates on lower- to middle-incomes will lose an additional £30,000 from this change—and that’s before the interest rate increase is taken into account.
These staggeringly unfair policies will see young graduates paying an effective 50% tax rate on earnings above the thresholds when income tax, national insurance, and student loan repayments are taken into account.
When you put all these reforms together, they amount to a full-fledged attack on working-class graduates. These students will have larger loans, that they will be paying off from a lower threshold, for longer, and at far higher interest rates.
Those who are able to repay their loans faster will incur less interest over the course of their loan, while those who earn less and take longer to repay the debt will incur more interest—at least for as long as inflation remains elevated.
Before the pandemic, people under 35 were already spending two thirds of their income on ‘essential’ goods and services, leaving little space for saving or unexpected expenses—let alone fun. And now the government is forcing young people to spend even more on debt repayments for the privilege of acquiring an education, which—for every single person implementing these policies—was free.
Alongside an attempt to protect the interests of wealthy homeowners, it’s hard not to view this as a punishment for young people who turned out in droves to vote for Jeremy Corbyn. But this move might come back to bite the Conservatives when they realise that they have deterred an entire generation from ever voting Tory.